Investment ratings firm Morningstar released its annual ranking of 529
college savings plan on Monday, noting industry-wide improvements in
plan fees and performance.

Almost every state offers a 529 savings plan, named after Section 529 of
the Internal Revenue Code, describing how those who contribute to these
investment vehicles don't have to pay taxes on proceeds. Benefactors,
such as parents and grandparents, can start a plan for named beneficiary
as soon as a child is born.

While you do not have to choose a 529 savings plan offered in your
state, many states offer tax breaks if you do invest in their plans.

Laura Lutton, director of funds of funds research for Morningstar, said
if you are going to consider a 529 savings plan for a child, it's best
to start early, given the accelerating cost of college and that there
are relatively few years to save, compared to retirement or other
savings goals.

If you live in a state where there are tax benefits, in most states you
give up those benefits if you choose another state's 529 plan.

Only five states allow you to apply that state's tax benefit to any 529
plan, regardless of its origin. Those states are Kansas, Missouri,
Arizona, Maine and Pennsylvania.

Morningstar.com's 529 Plan Center
features an interactive map that lists each state's plans and its tax
benefits. For example, Ohio has two 529 plans that offer $2,000 in-state
tax deductions for single or joint filers.

This year's list of the best plans are described by a new ranking of
gold, silver, bronze, neutral and negative to match Morningstar's
analyst ratings for mutual funds, so the descriptions can be more
clearly interpreted for different investment vehicles, a spokesman said.
In previous years, Morningstar rated ranked plans in several tiers:
top, above average, average and below average.

The rankings are based on characteristics like price and performance,
which allow analysts to estimate which plans are more likely to
outperform over the long term on a risk-adjusted basis.

The 27 plans that received medals represent more than 95 percent of the $162 billion in 529 plan assets in the country.

The top-ranked plans this year have differing aspects, as usual. Some
are direct-sold to parents or family members, while others are
adviser-sold plans.

Lutton said plans in the industry continue to improve with quality
investments since a decade ago, when they were first launched.

"Years ago, when the industry was getting started, those investments
were tougher to come by. The plans were loaded with funds that weren't
performing well," she said.

Also, costs to invest in these funds have also decreased, leading to
incremental improvements in some plans that received a neutral rating
this year, compared to a negative rating a year ago.

"I think that's a great trend that benefits all college savers," she said.

TIAA-CREF is the plan manager for two plans that represent the wide
range of available choices. The Michigan Education Savings Program
received a silver rating while Minnesota College Savings Plan received a
negative rating.

"They have very similar indexed options for 7 to 12 year olds, but the
Michigan plan charges 0.35 percent for its option and has negotiated
much lower fees going forward, and the Minnesota plan charges 0.51
percent," Lutton said. "The Minnesota plan will always underperform the
Michigan plan with that price differential."

Lutton said any of the plans that received a gold, silver or bronze
medal may be a "good choice for parents or grandparents." They vary only
by the conviction of how strongly Morningstar believes they will
outperform.

Here is a list of the four gold plans and four silver plans Morningstar selected this year.